It is an honour to be invited to speak in front of so distinguished an audience today.

The creation of the Vienna Initiative, its continuing good work and the success of the Joint Action Plan amount to one of the signal achievements of the international financial system in the first two decades of this century.

Many deserve praise for that achievement.

To a certain extent, that is what we should be celebrating most today: not just the achievement itself but also the way it represented a real coming together of different actors, all in a common cause.

I will be dwelling on this at more length later. But for now I do want to highlight the role played here by our Austrian hosts, both the National Bank and the Austrian government.

As well as the huge contribution of our partner international financial institutions: the World Bank Group, the EIB, the IMF - and the European Commission.

When the history of this period is finally written, several individuals will merit several pages devoted to them.

Allow me to single out one in particular: Thomas Wieser, who opened this conference yesterday, and of course has a long and distinguished career to look back on and today has the privilege of chairing the Wise Persons Group on the European Financial Architecture.

2.What we learned from the crisis – the big picture

Perhaps it is slightly premature to be attempting quite yet to deliver the definitive historical judgment on the events of ten years ago.

But I make no apologies for sharing my strongly held personal conviction about them and their significance with you today.

Put simply, I believe that the steps taken by all the different actors involved saved Emerging Europe’s banking sector from disaster.

The counterfactual scenario, one whereby that intervention never happened, hardly bears thinking about.

And my other main conclusion from a decade ago is this: the multilateral development bank system, multilateralism, if you like, works.

And it can work particularly well when we improvise, when we exploit our knowledge and networks and build informal, agile platforms to tackle the urgent problems confronting us all.

‘Improvise’, ‘informal’, ‘agile’: these are not the words that come immediately to mind when we think of the MDB world.

But we can display these qualities. And we did so ten years ago.

Together, the Vienna Initiative and the Joint Action Plan:

­preserved financial stability;

­ensured an orderly deleveraging of Eurozone-based banks from Central, Eastern and South-Eastern Europe;

­sped up resolution of non-performing loans; and

­helped strengthen local currency markets

The legacy has endured. We continue much of that work today, in different ways, by:

­facilitating home-host country coordination and reducing regulatory volatility and risk;

­helping avert systemic stress through close monitoring and reporting on any cross-border funding withdrawal of Eurozone-based parent banks; and

­enabling timely co-ordination at times of crisis, with an emphasis on the concerns of the host country authorities.

All this has been a necessary condition for a return of the growth that characterised the first two decades of transition. Albeit now at rates of growth that we would like to see accelerated and spread across the economy in a more equitable way.

3.What we learned from the crisis – lessons for the EBRD

I have been arguing that the international financial system, and everyone with a stake in it, can learn a lot from the lessons of the events of 10 years ago.

Before I move on to the subject of what lies ahead, I want to touch on some of the conclusions that the EBRD itself, the institution, has drawn from what happened then - and since.

And indeed how those events have changed the way we work – and today we work across three continents, in many more countries than we did back then.

At least two of those ‘new countries’, Greece and Cyprus, in which we were given specific time-limited mandates, have provided an important testing ground.

First, the crisis and its long aftermath brought home to us in the most forceful way how investment and policy work need to go hand in hand.

Our immediate reaction to the financial crisis was to boost the overall level of EBRD investments by more than half.

Then, the Joint IFI Action Plan, sponsored by the EBRD, the World Bank Group and the EIB, delivered over €33 billion in funding for East European banks to on-lend to businesses.

We have continued to grow our businesses. In recent years the EBRD’s annual investment levels have hovered just under the €10 billion mark and in 2019 we intend to break through the €10 billion barrier, and stretch for even higher levels in the years ahead.

All this is heartening and will have considerable impact. But quantity is only part of the story.

It will have much more impact if we can combine the power of our financial investments with the improvements to the business climate we secure through our work on policy reform.

This works both ways as we have shown time and time again.

Policy reforms can unlock IFI and private investment in a region.

But IFI investments, for their part, can help deliver the successful implementation of policy work.

We witnessed just such linkage in the NPL area. It required significant legal and regulatory changes, but also an initial flow of investors, one which we, together with our partners, were happy to provide.

The experience of 10 years ago was also one of several factors which encouraged us to look at the very concept of transition afresh.

So we now define a successful modern market economy as one which is integrated and well governed, among other qualities.

And while there were those who questioned the prevalence of cross-border banking in the region and even suggested that it represented a risk to its economies’ resilience, we believe that the case for integration is unanswerable.

Foreign-owned banks are less prone to connected or relationship lending and thus more likely to display sound business practices.

Our research proves that financial integration has benefited growth in Emerging Europe. And more evidence shows that liberalisation’s direct positive effect on growth far outweighs the indirect negative effect via a higher risk of financial crises.

At the same time, in many Vienna Initiative countries, foreign-owned banks have recorded a lower level of non-performing loans than domestically owned ones.

The last major lesson we have drawn from the crisis is the paramount importance of deepening local currency markets.

Currency mismatch was arguably the key cause of the initial rapid rise of NPLs in the region.

A considerable share of that increase was driven by currency depreciation. Many household and corporate loans were denominated in foreign currencies, while incomes were in local currencies, leaving borrowers unable to meet their loan obligations.

Building a sustainable local currency market is a challenge and requires expertise across the board, from money markets to bond and equity markets.

This will take time. But I am very glad to report that last year we signed 115 local currency transactions across the EBRD regions and are able to lend in 25 different local currencies.

4.And the work continues

I know that today we are marking a 10-year anniversary.

But I do want to stress that the challenge of preserving financial stability – and all the other activity we are engaged in – continues to this day.

And I want to emphasise how much we value and recognise your continuing efforts in this field.

We see that work in the very significant coordination between supervisory authorities, not least between the European Banking Authority and countries such as Serbia, Albania, North Macedonia, Montenegro, and Bosnia and Herzegovina, enshrined in a Memorandum of Cooperation signed a few years back.

We hope that it can serve as a model for future coordination between the European Central Bank and countries from the region.

And the work on creating greater transparency for reforms and restructuring to make more progress in dealing with the scale of the NPL problem continues as well.

The NPL Initiative shares knowledge of best practices and builds capacity.

As you know, the figures from the second half of last year showed that NPL total volumes and ratio maintained their downward trajectory.

And we continue to focus on foreign currency debt, one of the biggest continuing risks to financial stability in emerging Europe.

And on the related need to build deep and liquid capital markets which could act as an alternative to the banks in channeling investment into the economy.

5.Unfinished business for the future

Let us now look ahead to the priorities, as we see them, for the years ahead.

You will not be surprised to hear that top of our list is still the NPL issue.

From a macroeconomic perspective, a high stock of NPLs negatively affects the resilience of a country’s banking sector to shocks and hence increases systemic risk to financial stability.

They affect banks’ cost of funding and profitability and ultimately raise questions about their solvency, thus impairing their capacity to lend to the real economy.

A successful reduction of NPLs would help clean up banks’ balance sheets and free up their ability to lend more.

The way in which NPLs are resolved, whether work outs and write offs internally or sales externally, also matters.

Bigger (as measured by NPL volumes) and more developed markets are more susceptible to developing a secondary market for NPLs, while smaller markets are probably limited to internal resolution arrangements.

Larger transaction volumes and a more liquid NPL market will help bridge the pricing gap and increasing banks’ willingness to part with their NPL portfolios.

Another priority is regulatory reform. I recognise that the Vienna Initiative had devoted a whole work stream to this issue.

Many regulatory changes enacted since the financial crisis and aimed at reducing risks in the EU banking sector have worked.

Some, however, appear to have had unintended consequences for the banking sectors in a few non-EU countries, especially those with a large presence of Eurozone banking group subsidiaries, such as in the Western Balkans.

Introducing risk weights on non-EU sovereign exposure not only challenges commercial banks’ parents, thereby affecting their subsidiaries’ profitability, but also Western Balkans’ Central Banks and governments.

It affects their ability to conduct monetary policy. It restricts their fiscal policies. And it puts unwelcome pressure on foreign currency markets.

Western Balkans banks are currently experiencing significant liquidity surpluses, as evidenced by falling loan-to-deposit ratios and lacklustre credit growth.

But their inability to invest these surpluses in local currency government securities is having a negative impact on their profitability.

In some countries, for now, that impact may be muted.

But with a tightening in monetary policy in prospect, and new regulations resulting in increased capital requirements, that impact may make itself felt sooner rather than later.

It could, for example, affect the decision of Eurozone banks whether to continue operating in these markets – or not.

And any significant divestment moves by parent companies could undermine regional banking stability, with serious implications for countries seeking membership of the EU.

Let us not forget that these countries are indeed EU candidate members. They will, one day, join the EU and be subject to EU regulatory bodies.

In some of them the share of total assets held by Eurozone bank subsidiaries ranges between 60 and 90 percent.

The stakes are therefore very high.

A third priority for us all – and for the EBRD in particular – is the search for a new growth model for the region.

Once again I know that this is a challenge which the Vienna Initiative is grappling with.

The decline in Emerging Europe’s productivity growth, both in absolute terms but also relative to Western Europe, is striking.

We diagnosed the problem, in many of our regions, in 2013 with our annual Transition Report titled ‘Stuck in Transition?’

And then, the following year, we came up with some provisional remedies for the problem, most notably by encouraging more innovation within companies.

But the definitive solution to the ‘productivity puzzle’ still eludes us.

A major part of it will involve the sort of work you are already involved in, especially financing innovation and further developing capital markets.

The final area which we identify as a priority is that of green finance.

This is one where we at the EBRD believe we have played a leading role, especially in engaging with the private sector on it.

For example, we are on track to hit our target of climate finance accounting for 40 percent of our total annual business volume next year.

Ten years ago it seems unlikely that many of those involved in saving Emerging Europe’s banking sector would have spent too much time worrying about the risk to it from global warming.

But that was then and this is now.

We at the EBRD are monitoring the work of Central Banks which are members of the Network for Greening Financial Systems with great interest.

Our own activity, in quantifying and mitigating physical climate risk for example, dovetails well with it.

6.Conclusion

Concluding with the innovation of green finance as one of the four priorities for the years ahead brings me back to my starting point.

Today, we salute all those involved in the historic events of ten years ago and their aftermath, whether institutions or the individuals who work for them.

Together, they showed foresight, courage, presence of mind and determination.

Had they played the game by the traditional rules, history might look rather different.

And had the countries afflicted by the crisis been forced to or chosen to negotiate it on their own – without the firepower of the multilateral system to support them – the crisis would have been much deeper and lasted much longer.

As it was, everyone involved in the Vienna Initiative saved the banking sector in Emerging Europe.

And, in the midst of one crisis, they averted another that could have had even more serious consequences.

They did so by improvising, by leveraging their individual strengths, by working together and building informal, agile platforms to tackle urgent problems.

One platform, the Vienna Initiative, has stood the test of time. And it still has much to offer.

That particular problem, the problem which the Vienna Initiative was created to deal with, took many of us back then by surprise.

But there are many other challenges we need to confront which none of us can say we have not been warned about.

The challenge of increasing the scale of our investments in the green economy – and reducing the risk to our financial system from the threat of climate change – is one of the most pressing.

But it is not the only one.

Today, we remember the achievements of a decade ago - and the years since.

And I can think of no better way of celebrating them than by keeping the spirit of 2009 alive – and deploying it again to resolve the many other problems we face together.